Fixed Rate Mortgages vs. Adjustable Rate Mortgages

 

So you have the ability to decide on what kind of mortgage you would like to obtain or switch to because you are refinancing. You have heard that either one can be beneficial but you are not sure which one is right for you. Well, good thing you found this article because we will break down what each one consists of; as an online mortgage broker firm, we deal with both of these mortgages a lot.

 

As the two primary types of mortgages for homes in America, both of these kinds of mortgages have the ability to work for you, if your circumstances call for one or the other; if they do not match up, then you can end up in a bad situation.

 

We will start with the fixed rate mortgage. A fixed rate charges an interest rate that does not change throughout the life of the home loan, hence, the name fixed rate. You receive an approved rate from the lender and that is your rate from the moment you close on the loan until you pay it off; the only way to change the rate for a fixed is to mortgage refinance your rate and try to get a lower one when the rates dip. The only thing that changes each month for a fixed is the amount of principal and interest that you are paying each month; as you pay the mortgage, the amount of interest on each payment is lower because the amount of principal is reduced as well. A major perk from having a fixed is that you will have an easier time budgeting for this one since you can depend on the payments being stable; you are protected from having your rate jump high and thus causing the payment to be higher and having a payment you cannot afford.

 

So what is an Adjustable Rate Mortgage? Well, for starters, they are often simply called ARMs. When you have an ARM, you find that your ARM's mortgage rate will vary over time. For an specified initial period of time for an ARM features a fixed rate that is often set below the average rates, however, once that period of time is over, your rate will adjust depending on a pre-approved and agreed upon schedule that will dictate when the rate changes and by how much. The periods of time when the rate changes are known as adjustment frequencies; caps are how high or low the rate can go for each adjustment.

 

If you have any questions about fixed or ARMs, then feel free to contact TrueFi.